Using the equity from a UK property to buy in Spain

Over the years our UK house has increased in value from £66K to £185K, and my wife and I are considering releasing the equity investment and buying a Spanish property. Our current UK mortgage is £35K. We have two choices in terms of funding the purchase: to take out a Spanish mortgage – meaning that we would have two seperate mortgages for each property; or to increase our UK mortgage to the current value of our UK property over a 25 year period, and buying the Spanish property outright.

After speaking to my UK mortgage lender, they told me that by increasing the UK mortgage to buy the property outright would mean that we have no fees to pay on the purchase. Considering that the interest rate they would charge on this arrangement current stands at 5.65%, would we still be better off taking out a separate Spanish mortgage and paying the fees? Also, if we did buy outright, what fees would we then not be paying for (i.e notary, wealth tax, etc), and what services will we need to make sure we do get and pay for (i.e. solicitor fees)?

You would have to check it with a good mortgage broker in Spain but my feeling is that, even with the set-up costs it would work out cheaper to use a Spanish mortgage whilst interest rates differential remain what they are. The problem is that no one really knows which way UK and Euro interest rates will go in the future so there will always be some guess work involved. For the time being at least it looks as if Euro interest rates are staying put whilst UK interest rates could well rise with the recent explosion in government borrowing. Having said that Euro rates will have to rise one day too.

I take your points on board regarding the unknown future of interest rates, and you’ve confirmed some of my thoughts as to positive benefits of getting a Spanish mortgage considering the current interest rate situation. I now need to step up my research!

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